Economic Watch: Jobs Boom Continues in March; Rate Cuts Remain Likely

Executive Summary

• The U.S. added 303,000 jobs in March, significantly beating expectations of 200,000. Revisions to the January and February job totals resulted in a net gain of 22,000.
• Job gains in March were largely in the health care, government, leisure & hospitality and construction sectors. Other sectors like financial activities and professional & business services had much smaller gains.
• The unemployment rate fell by 10 basis points (bps) to 3.8% and the labor force participation rate ticked up to 62.7%. Average hourly earnings rose by 4.1% year-over-year, in line with market expectations.
• Continued strong job growth likely will keep the Fed cautious about cutting interest rates. However, we still expect the Fed will begin cutting rates around midyear, which will help to increase commercial real estate investment activity. Continued economic growth also will support leasing activity.

Impacts on Commercial Real Estate

Office

Office-using jobs increased by 10,000 in March, with professional & business services adding 7,000 and financial activities 3,000. Although steady economic growth will support office leasing, structural changes in demand and a degree of uncertainty about business conditions will remain headwinds.

Industrial

The warehousing & storage sector lost 5,500 jobs in March, while manufacturing had no gain. Despite soft hiring in these sectors, a strong U.S. consumer—bolstered by a resilient labor market—will ensure that demand for industrial & logistics facilities remains healthy.

Retail

Traditional retail gained 17,600 jobs in March, while food services & drinking places added 28,300. Consumer strength and little new supply continue to support retail real estate fundamentals. However, we expect that consumer spending will moderate somewhat as interest rates remain high.

Construction

The construction sector added 39,000 jobs in March. Although high interest rates are a headwind for construction activity, fiscal policy continues to support nonresidential construction and a single-family housing shortage is fueling demand for new residential construction.

Health Care

Health care gained 72,300 jobs in March. Ambulatory health care (outpatient services) added 27,500, while hospitals gained 27,100 and nursing & residential care 17,700. We expect that health care will continue to benefit from pent-up demand for medical procedures and an aging population.

Hotels

Accommodation services gained 3,200 jobs in March. We expect that as excess savings are drawn down, still-strong consumer spending on travel and experiences will moderate.

Multifamily

Multifamily continues to benefit from high mortgage costs that make renting a more attractive option than buying. Continued job growth also supports household formation, which will aid absorption of new supply.

The Bottom Line

Continued strong labor-market performance will keep the Federal Reserve cautious about cutting rates too soon. Nevertheless, CBRE expects the first rate cut likely will be made in June. This is based on our expectation that inflation will continue to trend down to the Fed’s 2% target.

While the March jobs report will undoubtedly fuel further bond market volatility, we expect that long-term interest rates will fall to the upper-3% range by year-end. This likely will result in increased investment activity later this year. Leasing should remain relatively resilient amid continued economic growth, but uncertain business conditions will likely keep occupiers somewhat cautious in 2024.